Important terms to understand
Knowing what common credit card terms and processes mean can be a big advantage. Whether you’re looking for a new card or managing an existing account, the more you know, the easier it is to make good financial decisions. This glossary can help you learn what you need to know.
Account Agreement
Terms and conditions for the use of a credit card and the repayment of debt between the borrower and the lending institution. You’ll receive a copy when you open an account, and may also request one through the issuing company’s customer service department.
Adjusted Balance
The balance subject to interest charge, which is calculated by taking your beginning balance and adding up all transactions, then subtracting all payments or credits, just before the issuer prints your monthly statement.
Annual / Monthly Maintenance Fee
A fee that is charged either yearly or monthly if your account is open or if you maintain an account balance, whether or not you have active charging privileges. Monthly charges will appear on your statement as "Monthly Maintenance Fee" and annual charges as "Annual Fee".
APR (Annual Percentage Rate)
The yearly rate of interest. The APR is listed in the account agreement, as well as on your monthly billing statements.
Automatic Funds Transfer
An arrangement that moves funds from one account to another automatically on a pre-arranged schedule; for example, every payday or once a month.
Automatic Payment
An arrangement that authorizes payments to be deducted automatically from your bank account (usually a checking account) to pay bills (such as insurance payments, rent, mortgage or loan payments).
Average Daily Balance
The balance subject to interest charge that calculates the balance for each day during the statement cycle. The average daily balance is determined by adding up the daily balances, then dividing them by the number of days in the cycle.
Balance
The total amount owed on a credit card account at a given time. See also Balance Subject to Interest Charge.
Balance Subject to Interest Charge
The balance amount that is used to calculate an interest charge for a periodic statement. The most common methods are the average daily balance and the adjusted balance. The account agreement explains which method a specific credit card company uses.
Balance Transfer
The act of transferring debt from one account to another. This is typically done between credit cards to take advantage of a lower rate offer or to consolidate debt to lower monthly payments.
Bank Cash Advance
A Bank Cash Advance is when you use your account for a loan, examples include: withdrawing cash at an ATM, transferring funds from your credit card for Overdraft Protection or using your credit card for money orders. Since only a portion of your Total Credit Line is available for Bank Cash Advances, it’s important to keep track of the remaining amount that you can use for Bank Cash Advances.
Cash Credit Line
The Cash Credit Line is the portion of your Total Credit Line that you can use for Bank Cash Advances.
Cash Equivalent Transaction
A purchase of “cash equivalents”—items that can be used as or changed into cash—from any seller other than a financial institution. Examples of cash equivalents may include casino gaming chips, foreign currency, money orders, wire transfers and travelers checks from a non-financial institution. Please refer to your account agreement to find out what types of transactions your credit card issuer considers cash equivalents.
Credit
A contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date.
Credit Card
A plastic card issued by a bank or other financial company for the purpose of purchasing goods and services using credit. In most cases, a credit limit is established for each account.
Credit History
Includes your account types, remaining balances, payment status, collection information and inquiries. Credit bureaus collect and organize information about people who have credit. The information generally goes back seven to ten years. This report includes your name, address, employer, length of employment and previous credit history.
Credit Report
A complete record of your financial history, including information about all loans, late payments and bankruptcy.
Credit Score
A number rating the quality of your credit. Credit bureaus calculate this number, often with the assistance of computer systems. Lenders use this score as part of the process of assigning rates and terms to the loans they make. There are several Web sites that allow consumers to request their score online. One common type of credit score is the FICO® score.
Direct Deposit and Check Cash Advances
A transaction category that includes access checks or transferring funds directly from your credit card to a deposit account.
Electronic Funds Transfer (EFT)
Any transfer of funds initiated by electronic means, such as an electronic terminal, telephone, computer, ATM or magnetic tape.
Fraud
Unauthorized use of a credit card account, or a deception deliberately practiced in order to gain unauthorized access to an account.
Grace Period
An interest-free period between the time of a purchase and the payment due date shown on your next statement. Bank Cash Advances, Balance Transfers, and Direct Deposits and Check Cash Advances generally do not have a grace period, and there is no grace period for payments, which are due no later than the payment due date.
Interest Rate
A rate of interest charged for the use of a credit card, loan or line of credit, expressed as a percentage of the total amount loaned. Different types of loans charge different rates of interest.
Late Fee
A fee charged when the total minimum payment is not received by the payment due date.
Non-sufficient Funds Fee (NSF)
A fee that occurs when there is not enough money in an account to cover a given transaction.
Online Banking
A service that allows an account holder to obtain account information and manage certain banking transactions, including bill payment, through a personal computer.
Payment Allocation
The method used by your credit card issuer to assign all or part of your payments. If you have balances with different rates, your total minimum payments may go to pay off the balance with the lowest rate first. Any extra amount you pay — over the total minimum payment — will go to pay off the balances with higher rates first. Customers may not decide payment allocation.
Payment Due Date
The date a payment on an account is due. Late fees are charged if the payment is received later than this date or if less than the total minimum payment is received.
Penalty Rate
The APR(s) which may be applied to your account under certain circumstances, such as if you pay late, miss a payment, or pay less than the full amount due by your payment due date. Also known as "Default APR" or "Default Rate."
PIN (Personal Identification Number)
Numbers that customers use to access their credit card accounts via ATMs. These numbers should always be kept confidential.
Posted Transaction
When a transaction or item appears on your account statement. “Posted” transactions have been processed by your issuer, but funds for the transaction may still be in transit. Unposted transactions have not yet been processed, but may affect the amount of credit available. See your account agreement for details.
Promotional Rate (or Introductory rate)
A rate that’s lower than your standard interest rate and is valid only for certain transactions, for a limited period of time.
Residual Interest Charge
The amount of interest that’s accrued between the closing date of your last statement and the date your balance was actually paid. This only occurs on credit card balances that are accruing interest charges.
Statement
A printed or online description of all the activity on an account for a given statement’s billing cycle, including transactions, fees, interest charges, payments and credits.
Statement Billing Cycle
The amount of time between your last statement date and your current statement date. For instance, if your current statement is dated October 1, and your previous statement was dated September 1, there are 30 days in your statement cycle.
Total Credit Line
The Total Credit Line is the amount of credit available for your Credit Card account.
Transaction
Sequence of events involved in making a purchase, bank cash advance, or other action with your credit card. For instance, when you make a purchase, the sequence begins with your selection of merchandise or services, and ends with the disbursement of funds to the merchant.
Transaction Fee
A fee that may be charged when making certain types of transactions with your credit card. It’s usually a percentage of the total amount of the transaction. For example, a transaction fee is often charged when you use your card for a bank cash advance transaction, such as withdrawing cash from an ATM.
Transaction History
The section of your statement that itemizes every action on your account during the statement billing period.
Transfer
A movement of funds from one account to another.
U.S. Prime Rate
The prime lending rate offered by a number of the country’s largest banks. It is frequently cited as a standard for general interest-rate levels in the economy. The U.S. Prime Rate is often used to calculate variable interest rates. A set number or margin, determined by the issuer, is added to the U.S. Prime Rate to get the variable interest rate. When the Prime Rate goes up or down, the variable rate may change.
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